(2) Whether the withholding of those consents amounted to a repudiation of the lease by the landlords such as the tenant was entitled to accept and thereby bring the lease to an end.
Whether Consent Unreasonably Withheld
9 All parties to these proceedings joined in tendering the issue to be decided in the form of issue (1) set out above. There was equally agreement that s 133B(1) of the CA applied to the covenant in this case. It seems to me that this concession was correct. In these circumstances, clause 11.3 could operate to make it plain that, in appropriate circumstances, a requirement of directors' guarantees would not of itself make the landlords' conduct unreasonable. But it could not exclude the power of the Court to determine reasonableness, nor give absolute entitlement to require the guarantees of directors in all circumstances. In any event, this was the basis on which the case was argued by all.
10 The authority most commonly referred to in relation to the considerations to be taken into account in determining whether consent to an assignment of lease is unreasonably withheld is the judgment of Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 at 519-521. The propositions enunciated by his Lordship were summarised and approved by Young CJ in Eq in Tamsco Ltd v Franklins Ltd (2001) 10 BPR 19,077 at [49]. Bearing those propositions in mind, I am inclined to the view that the withholding of consent in the case of both Interfrank and Woolworths was unreasonable. Among the factors that I take into account in tending to that view are the insistence upon the personal guarantees of directors of public companies or their subsidiaries, when the original lease was to a subsidiary of a public company without guarantees; the mention of increased rental or increased length of term as a factor in whether consent would be granted; and the reference to a desire by the landlords to occupy the premises personally or let them to people with whom they were acquainted. The long delay in giving a decision concerning Interfrank, when time considerations were of importance, is also an indicator of unreasonableness. However, I do not need to come to and do not come to a final conclusion on the issue of the reasonableness or unreasonableness of the withholding of consent. This is unnecessary because of what appears in paragraphs [17] and [18] below.
Termination by Acceptance of Repudiation
11 Contrary to the view once taken, it is now clear that in appropriate circumstances a lease may be brought to an end (as is generally in the case with any other contractual arrangement) by the acceptance by one party of the repudiation by another of the contractual arrangement. It has been so held by the High Court in Shevill v The Builders Licensing Board (1982) 149 CLR 620; The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623. If the landlords' conduct were unreasonable and in breach of its obligations under the lease, it may be that the conduct could constitute a repudiation of the lease fit for the tenant to accept and thereby terminate the lease. But the first question is whether the conduct can be taken to be in breach of any obligation of the landlords under the lease.
12 The status of provisions in terms such as "such consent not to be unreasonably withheld" in a tenant's covenant not to assign without consent has been the subject of a large body of authority. The burden of that authority is that, if the provision is truly to be regarded as a proviso to the covenant, then it imposes no obligation upon the landlord which would, for instance, support an action for damages for breach, but leaves the tenant free to proceed with the assignment without consequence. The situation is different if the terminology of the lease is such that the landlord is, upon its true construction, to be taken to have made a covenant or given a promise. In Treloar v Bigge (1874) LR 9 Ex 151, there was a covenant by the lessee not to assign the lease without the consent in writing of the lessor, "such consent not being arbitrarily withheld". The situation was discussed as follows by Kelly CB at 154 - 155:
"Now the rule of law, no doubt, is that any words in a deed which impose an obligation upon another amount to a covenant by him; but the words must be so used as to shew an intention that there should be an agreement between covenantor and covenantee to do or not to do a particular thing. I cannot find any such intention here. The words, taken grammatically, do not seem to me to amount to an undertaking by the lessor, but are a part of the same sentence as that containing the lessee's covenant, and qualify its generality. They prevent that covenant operating in any case of arbitrary refusal on the part of the lessor, that is, in any case where, without fair, solid, and substantial cause, and without reason given, the lessor refuses his assent. I have known in my own experience several cases in which actions have been brought for the arbitrary withholding of consent by a landlord. But in all (as in the case of Sheppard v Hong Kong and Shanghai Banking Corporation (1872) 20 WR 459) there was a covenant in express terms, so as to give the lessee a right of action. In the present case, for the reasons I have given, I think there was no such covenant."
13 That case and a long line of successors were considered in this Court by Waddell J in Yared v Spier [1979] 2 NSWLR 291. The covenant in that case was covenant No 16 by the lessee in the relevant schedule of the CA, which was relevantly a covenant not to sublet the demised premises "without the consent in writing of the lessor, but such consent shall not be refused in the case of a proposed respectable and responsible … tenant." After examining closely both the forms of covenant and the Judges' reasons in those cases his Honour said at 297:
"The principles upon which the present covenant is to be understood are well established by the decisions mentioned above. In my opinion, it would be extremely artificial to regard the slight differences between the words of the present covenant, and those considered in cases in which it was decided that the lessor was not liable in damages for a refusal of consent, as leading to a different conclusion. It seems to me that it has been taken to be settled law for many years that, in the absence of an express covenant by a lessor not to refuse his consent, provisos of the kind under discussion have been regarded as not exposing him to any liability in damages for such a refusal. There is, I think, no justification for departing from this settled view of the law."
14 In the same year, Treloar v Bigge supra was referred to with approval in the Court of Appeal by Hutley JA in Barina Properties Pty Ltd v Bernard Hastie (Australia) Pty Ltd [1979] 1 NSWLR 480 at 493. As the subject matter of those proceedings was considerably different from the present, there cannot be said to be an authoritative ruling of the Court of Appeal on this matter, but the approval of at least one Judge of Appeal of the principle was made plain.
15 Mr Studdy, of counsel for the tenant, submitted with his usual vigour that this case was different and that on the wording of this lease the landlords should be taken to have made a covenant or given a promise. He points to the fact that the exception is in a clause (11.2) separate from that containing the lessee's principal promise (11.1). He points to the use of the words "shall not be" rather than "not to be". He says that the use of the word "shall" is indicative of a covenant rather than a proviso. He has compared the provisions of the lease in this case with those of the lease in Tamsco supra, which he says the plaintiffs contend contained a covenant by the landlord. He has said that, in any event, the situation should be regarded as changed by the decision of the High Court in cases such as Shevill supra.
16 I have considered carefully everything he has said and the words of Part 11 in the context of the whole lease. These matters are not easy and the area is a technical one, but I cannot see any distinction of reality between these provisions and the provisions considered in Treloar v Bigge supra, Yared v Spier supra and other proviso cases. There may be a division of Part 11 into sub clauses 11.1, 11.2 and 11.3, but to me the whole of Part 11 has the characterisation of a covenant by the lessee not to assign with provisos or exceptions built into it. The words "shall not be" do not have any different significance in this context from the words "not to be". And the possible significance of the words "shall not be" in the context is muddied by the unsatisfactory syntax of the clause after the insertion of the italicized words. As I have already commented, the error created by the insertion could be equally easily corrected by reading the clause as "which consent shall not be" or "such consent not to be". The provisions in Tamsco are significantly different (not that I am construing the lease in Tamsco), in that the form of the separate clause relating to the withholding of consent in that case can be more readily regarded as constituting a promise by the landlord. Significant as is the change in the law effected by Shevill, in my view it does not detract from principles as to whether or not obligations are imposed by particular forms of covenants in leases, which have been developed over centuries rather than decades. This is particularly so, since changes in this regard are likely to unsettle settled relations in respect of rights of property.
17 In my view, the provision for consent not to be withheld in this lease is of the nature of a proviso rather than of a covenant or promise within the meaning of the principles set out in the authorities discussed above. That being so, the unreasonable withholding of consent would not constitute a breach of covenant or obligation on the landlords' part. The result of such conduct would be that the tenant would be left free to assign without consequence. Equally, under the modern law, the tenant could seek a declaration from the Court that the consent was being unreasonably withheld: Tamsco supra; Cathedral Place Pty Ltd v Hyatt of Australia Ltd [2003] VSC 385. But even if the withholding were unreasonable, the tenant could not sue for damages for breach of contract. Equally, in my view, as there would be no breach of obligation by the conduct, the conduct could not constitute a repudiation of the lease by the landlords which the tenant could, by accepting, terminate the lease. In my view, if the conduct could not be regarded as a breach of obligation, it could not be regarded as conduct evincing an intention not to be bound by the lease. There was therefore no conduct amounting to a repudiation of the lease available to be accepted by the tenant and the lease cannot be taken to have been terminated in that way.
The Cross Claim
18 Both Linknarf and Franklins cross claim against the plaintiffs for damages for negligence. This cross claim arises out of the same subject matter as the claim. It is said that the plaintiffs in the circumstances owed each of them a duty of care which was breached by the plaintiffs' unreasonably withholding consent to the assignment of the lease. The damages sought are the loss of the bargains with Pick'n'Pay and then Woolworths in relation to the assignment of the lease. The law in this area has been quite unclear since the decision of the High Court in Perre v Apand Pty Ltd (1999) 198 CLR 180: see also Sullivan v Moody (2001) 207 CLR 562; Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540; Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; and see the decision of the Court of Appeal in State of NSW v Godfrey [2004] NSWCA 113. It does remain clear that the manner of performance of obligations in a contract between A and B may in circumstances where a duty of care to C arises give rise to liability in negligence to C. It is difficult in the present state of the law to define the criteria by reference to which such a duty of care might arise. Whatever they may be, I cannot see that it is established in this case that such a duty of care by the plaintiffs arose in favour of either Linknarf or Franklins. I have already found that the actions of or lack of action by the plaintiffs did not amount to an actionable breach of obligation by them. I find it difficult to see in the circumstances how a duty of care arose towards Linknarf. I find it equally difficult to see how a duty of care arose to its parent company. Quite apart from any other considerations, it seems to me that a duty of care could not arise when the situation could be controlled by Linknarf by its either proceeding with an assignment without consent or seeking a declaration that the failure to consent was an unreasonable withholding. Equally in the case of Franklins, it could have caused Linknarf to proceed in either of those ways. I find that no duty of care arose. Not only do these considerations operate to preclude the existence of a duty of care, but they operate to destroy any causal connexion between the conduct complained of and the loss, and this whether or not there is a duty of care. This is because it was open to the cross claimants to proceed in the fashion which I have set out above. Any suggestion that there was not time to seek declaratory relief could not realistically be made in the face of the facilities for swift relief provided in the Duty and Expedition Lists of this Division of the Court. The cross claimants' suggestion that they were precluded from acting in this way by the delicacy of the negotiations cannot be regarded in the circumstances as a realistic excuse for not acting. For the foregoing reasons, there must be judgment for the cross defendants upon the cross claim.
19 I shall appoint a time for the parties to bring in short minutes to give effect to the decisions embodied in these reasons. At that time, any question of costs can be argued and directions may be sought as to the conduct of the balance of these proceedings not disposed of by this judgment.